M/S Jialall Kishori Lall Pvt. Ltd. v. Municipal Corporation of Delhi

2. This Court while issuing notice of the appeal to the Respondent on 24th September, 2009 recorded the statement of the counsel for the Appellant that the bank guarantees in question shall be kept alive. On the said statement, encashment of the bank guarantee was stayed. On 8th January, 2010 it was stated by the counsel for the Respondent MCD that the Appellant had failed to keep the bank guarantees alive. The matter was as such posted for 11th January, 2010. The senior counsel for the Appellant on 11th January, 2010 informed that the bank guarantees had been got revalidated and shall be kept alive as assured to this Court. The senior counsel for the parties have been heard.

3. The contention of the senior counsel for the Appellant is that the bank guarantees are titled “Bank guarantee for mobilization advance”; it is contended that such bank 2010:DHC:235-DB contended that however the invocation of the bank guarantee is not for non-utilization or mis-appropriation of mobilization advance but for other reasons. Reliance is placed on the letter dated 30th March, 2009 of the MCD of invocation of the bank guarantees and wherein it is stated that the Appellant has failed to complete the work within the agreed time and 10% compensation had been levied on the Appellant for delay in work and which the Appellant had failed to pay to MCD. It is contended that the bank guarantees could be invoked only for recovery of unutilized mobilization advance or on account of mis-appropriation thereof and not for recovery of liquidated damages for the alleged delay in completion of the work. Reliance is placed on Hindustan Construction Company Limited v. State of Bihar, (1999) 8 SCC 436 in this regard. To satisfy the conscience of this Court that the entire mobilization advance has been already recovered, reference is made to the letter dated 3rd July, 2009 of the MCD to the Appellant confirming that 32% of the work had been executed and furnishing particulars of the final measurements. It is contended that not only has the mobilization advance against which the guarantees were furnished been so recovered by the MCD but there are unpaid bills of the Appellant against the MCD.

4. The invocation letter dated 30th March, 2009 (supra) relied upon by the Appellant is in continuation of the earlier letter dated 27th March, 2009. The counsel for the Respondent during the hearing has handed over in Court a copy of the letter dated 27th March, 2009 of the MCD to the bank. In the said letter, the reason for encashing the bank guarantee is given as the Appellant having failed to utilize the said advance for the purposes of the contract. In view of the letter dated 27th March, 2009 which was suppressed by the Appellant, we are satisfied that the bank guarantee has been invoked stating the reason as failure of the Appellant to utilize the mobilization advance for the purposes of the contract. The argument of the Appellant of the invocation being not in accordance with the terms of the guarantee thus disappears. In terms of the Bank guarantees, the Respondent is the sole judge of as to whether the Appellant has utilized the said advance for the purposes of the contract or not and demand of the Respondent is

5. We may also notice that the bank guarantees though titled as for mobilization advance and in recitals guaranteeing the due recovery by the MCD of the said advance with interest, in para 2 thereof state as under: “We, the Corporation Bank further agree that the MCD shall be the sole judge of and as to whether the said Contractor has not utilized the said advance or any part thereof for the purpose of the Contract and the extent of loss or damage caused to or suffered by the MCD on account of the said advance together with interest now being recovered in full and the decision of the MCD that the said Contractor has not utilized the said advance or any part thereof for the purpose of the Contract and as to the amount or amounts of loss or damages caused to or suffered by the MCD shall be final and binding on us.”

6. It would, thus, be seen that the Respondent MCD was entitled to invoke the guarantee either for the reason of the Appellant having not utilized the said advance or any part thereof for the purposes of the contract or also for the recovery of loss for damage caused to or suffered by the MCD on account of the non-utilization of the advance. Else the guarantees are unconditional and the Bank had undertaken to make the payment on demand by the MCD and irrespective of any disputes whatsoever between the Appellant and the Respondent MCD.

7. The judgment in Hindustan Construction Company Limited (supra) records that the bank in that case had qualified its liability to pay the amount covered by the guarantee only if the obligations under the contract were not fulfilled or if any part of the mobilization advance was misappropriated. On such language of the bank guarantee, the Supreme Court held the bank guarantee to be not unconditional or unequivocal and the invocation having been found to be not in accordance with the bank guarantee, was stayed. However, as noticed above this is not the position here. The bank has guaranteed payment on the mere statement of the MCD that the Appellant has not utilized the said advance or any part thereof or that any loss or damage has been suffered by the MCD on account of the said advance. The letter dated 27th March, 2009 read with the letter dated 30th March, 2009 is found to be in consonance with the terms of the bank guarantee. Further the bank guarantee is not found to be conditional as in the case before the Supreme Court. Further, as noticed in the subsequent judgment in Vinitec Electronics Ltd. case (supra), Clause 9 of the main contract between the parties providing for refund of mobilization advance in the case of mis-appropriation thereof, was incorporated in the Bank guarantee therefore and it was for this reason that the Bank guarantee was not held to be unconditional and held to be invocable only in the circumstances mentioned in the said Clause 9. The Supreme Court in Vinitec Electronics Pvt. Ltd. (supra), did not find specific reference to any clause of the main contract in the Bank guarantee in that case and also did not find reference to any conditions for payment in the operative clause of the Bank guarantee and thus held the judgment in Hindustan Construction Co. Ltd. to be not applicable. The same is the position in this case.

8. The law with respect to bank guarantee otherwise not permitting the interim measures sought, there is no merit in the appeal. The same is dismissed.

CHIEF JUSTICE RAJIV SAHAI ENDLAW, J JANUARY 15, 2010 dk